An upwind finite difference method for a nonlinear Black–Scholes equation governing European option valuation under transaction costs

2013 ◽  
Vol 219 (16) ◽  
pp. 8811-8828 ◽  
Author(s):  
Donny C. Lesmana ◽  
Song Wang
Keyword(s):  
Finite Difference ◽  
Finite Difference Method ◽  
Transaction Costs ◽  
Difference Method ◽  
Option Valuation ◽  
European Option ◽  
Black Scholes ◽  
Upwind Finite Difference

scholarly journals Option Pricing under Risk-Minimization Criterion in an Incomplete Market with the Finite Difference Method

2013 ◽  
Vol 2013 ◽  
pp. 1-9 ◽  
Author(s):  
Xinfeng Ruan ◽  
Wenli Zhu ◽  
Shuang Li ◽  
Jiexiang Huang
Keyword(s):  
Finite Difference ◽  
Finite Difference Method ◽  
Option Pricing ◽  
Difference Method ◽  
Incomplete Market ◽  
Martingale Measure ◽  
Risk Minimization ◽  
European Option ◽  
The Finite Difference Method ◽  
Nikodym Derivative

We study option pricing with risk-minimization criterion in an incomplete market where the dynamics of the risky underlying asset is governed by a jump diffusion equation with stochastic volatility. We obtain the Radon-Nikodym derivative for the minimal martingale measure and a partial integro-differential equation (PIDE) of European option. The finite difference method is employed to compute the European option valuation of PIDE.

scholarly journals A Comparative Study between Implicit and Crank-Nicolson Finite Difference Method for Option Pricing

2020 ◽  
Vol 40 (1) ◽  
pp. 13-27
Author(s):  
Tanmoy Kumar Debnath ◽  
ABM Shahadat Hossain
Keyword(s):  
Finite Difference ◽  
Finite Difference Method ◽  
Option Pricing ◽  
Difference Method ◽  
Finite Difference Methods ◽  
Put Option ◽  
Black Scholes ◽  
Implicit Finite Difference ◽  
Difference Methods ◽  
Crank Nicolson

In this paper, we have applied the finite difference methods (FDMs) for the valuation of European put option (EPO). We have mainly focused the application of Implicit finite difference method (IFDM) and Crank-Nicolson finite difference method (CNFDM) for option pricing. Both these techniques are used to discretized Black-Scholes (BS) partial differential equation (PDE). We have also compared the convergence of the IFDM and CNFDM to the analytic BS price of the option. This turns out a conclusion that both these techniques are fairly fruitful and excellent for option pricing. GANIT J. Bangladesh Math. Soc.Vol. 40 (2020) 13-27

PENENTUAN HARGA OPSI DENGAN MODEL BLACK-SCHOLES MENGGUNALKAN METODE BEDA HINGGA FORWARD TIME CENTRAL SPACE

2018 ◽  
Vol 1 (1) ◽  
pp. 45
Author(s):  
Werry Febrianti
Keyword(s):  
Finite Difference ◽  
Finite Difference Method ◽  
Difference Method ◽  
Option Price ◽  
Call Option ◽  
Put Option ◽  
Daily Data ◽  
Black Scholes ◽  
One Year ◽  
The Right

Option can be defined as a contract between two sides/parties said party one and party two. Party one has the right to buy or sell of stock to party two. Party two can invest by observe the put option price or call option price on a time period in the option contract. Black-Scholes option solution using finite difference method based on forward time central space (FTCS) can be used as the reference for party two in the investment determining. Option price determining by using Black-Scholes was applied on Samsung stock (SSNLF) by using finite difference method FTCS. Daily data of Samsung stock in one year was processed to obtain the volatility of the stock. Then, the call option and put option are calculated by using FTCS method after discretization on the Black-Scholes model. The value of call option was obtained as $1.457695030014260 and the put option value was obtained as $1.476925604670225.

Fully Coupled Numerical Methods for Elastohydrodynamic Lubrication Line Contact Problems by the High Order Finite Difference Methods

2021 ◽  
Author(s):  
QUAN SHEN ◽  
Bing Wu ◽  
GUANGWEN XIAO
Keyword(s):  
Finite Difference ◽  
Finite Difference Method ◽  
Difference Scheme ◽  
Difference Method ◽  
Elastohydrodynamic Lubrication ◽  
Contact Problems ◽  
High Order ◽  
Line Contact ◽  
High Order Finite Difference ◽  
Upwind Finite Difference

Abstract In this paper a high order finite difference method is constructed to solve the elastohydrodynamic lubrication line contact problems, whose cavitation condition is handled by the penalty method. The highly nonlinear equations from the discretization of the high order finite difference method are solved by the trust-region dogleg algorithm. In order to reduce the numerical dissipation and dispersion brought by the high order upwind finite difference scheme, a high order biased upwind finite difference scheme is also presented. Our method is found to achieve more accurate solutions using just a small number of nodes compared to the multilevel methods combined with the lower order finite difference method.

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